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Franchisees Vow to Skip 7-Eleven’s Giant Convention, as Lawsuit Progresses

Presidents of 43 franchise owners associations, representing 7,000 franchised locations in the U.S., sent a strong message to 7-Eleven Inc. last November, vowing they will not attend the franchisor's giant convention and trade show in February, known as the 7-Eleven Experience, in protest of its harsh treatment of store owners.

"Our FOA representatives spoke loud and clear and the Coalition (National Coalition of 7-Eleven Franchises) listened. They voted to urge members stay away from the 7-Eleven Experience and now the Coalition wants to deliver that message to all," said Rehan Hashmi, vice chairman of the National Coalition. "The relationship between Seven Eleven Inc. (SEI) and its franchisees is no longer evenhanded and that is hurting our members and their livelihood."

Restaurant Business reported Hashmi saying that SEI closed its regular channels of communication after the California lawsuit was filed. "If SEI truly wants to recognize and celebrate its franchisees as the marketers of the 7-Eleven Experience claim, it shouldn't cut off communications. Franchise owners have invested their lives in this brand and we want to prosper, but we can't if our relationship with SEI remains one-sided," the vice chair stated.

The legal dispute between the franchisees and the franchisor escalated after franchisees in California filed the initial purported class action federal lawsuit on October 12, 2017, alleging 7-Eleven corporate wrongfully classifies its franchisees as independent contractors when in reality the store owners are employees under federal and California laws. They assert that 7-Eleven's continuous actions are causing them significant damage, as the franchisor increases its control over franchisee stores in violation of the franchise agreement.

After the lawsuit was filed in U.S. District Court for the Central District of California, NCASEF Executive Vice Chair Jay Singh explained that franchisees have long complained that the brand has been chipping away at their profits, increasing their costs, and exercising more control over what is supposed to an independent operation. He said the conditions imposed by 7-Eleven Inc. are threatening franchisee businesses, many of which are family operations that have operated 7-Eleven stores for decades.

7-Eleven responded saying, "The national coalition is clearly out of touch with the quality and volume of communications between 7-Eleven and franchisees. The reality is that 7-Eleven postponed two meetings in October involving less than 80 of the over 4,300 franchisees." Its statement continued that 7-Eleven has a long history of consistent and transparent communications with franchisees, and the firm has spent nearly $1 million "developing a best-in-class app built for franchisees, which allows them to easily access communications at their convenience."

Legal wrangling moves forward in franchisees' lawsuit

7-Eleven Inc. had more to say about franchisees' allegations, that they are treated more like employees than independent owners, in its counterclaim against the franchisees' legal complaint, pointing to the 7-Eleven Franchise Agreement, stating, "You and we agree that this Agreement creates an arm's-length business relationship and does not create any fiduciary, special or other similar relationship."

And, it adds, "You agree: (a) to hold yourself out to the public as an independent contractor; (b) to control the matter and means of the operation of the Store; and (c) to exercise complete control over and responsibility for all labor relations and the conduct of your agents and employees, including the day-to-day operations of the Store and all Store employees. You and your agents and employees may not: (i) be considered or held out to be our agents or employees or (ii) negotiate or enter any agreement or incur any liability in our name, or our behalf, or purporting to bind us or any of our or your successors-in-interest.

The 7-Eleven counterclaim also states,

  • When each franchisee enters into a Franchise Agreement with 7-Eleven, both parties agree, understand, and explicitly acknowledge that the franchisee is an independent contractor.
  • If Plaintiffs [Franchisees] are deemed employees rather than independent contractors, and Plaintiffs are entitled to the damages claimed in the Amended Complaint, 7-Eleven's continued performance of its obligations under the Franchise Agreements will be extremely and/or unreasonably difficult because the essential value of the Franchise Agreements to 7-Eleven will be defeated.
  • The changes in circumstances that will result from a Court finding that Plaintiffs are employees instead of independent contractors would cause 7-Eleven's continued performance of its obligations under the Franchise Agreements to be extremely difficult if not impossible. For example, if Plaintiffs prevail, 7-Eleven would be prohibited from receiving any remuneration in the form of franchise fees or other franchise charges, and would be prohibited from seeking compensation for services, leases, and inventory that it is contractually obligated to provide to the Plaintiffs.

But franchisee plaintiffs Serge Haitayan, Jaspreet Dhillon, Robert Elkins and Maninder "Paul" Lobana responded on December 20, 2017 to the franchisor's counterclaims [attached below], admitting in part and denying in part the firm's statements.

7-Eleven admits it has more control of franchise business than most franchisors

The franchisees' November 1, 2017 amended complaint (attached) asserts that 7-Eleven Inc. admitted in its 2016 FTC disclosures, "We [Defendant] retain a significant financial and marketing advisory role in the franchise business than in most other franchisee businesses." By contractual dictate, 7-Eleven's franchise agreement and incorporated operating procedures "impose more pervasive control over franchisee activity than any other in the United States."

The lawsuit alleges that to insure its dominance and control over franchisee operations, 7-Eleven has been given most powers of an employer and all of the harshest, most overreaching rights of a commercial lender, landlord, and personal property lessor." And it claims, "At the core of Defendant's [7-Eleven's] control is its total dominion over every dollar received into or paid out of proceeds generated from every franchise store. Defendant's absolute control over the money insures that Defendant gets paid every single day in full for all matured obligations owed to Defendant before any store creditor, worker or franchisee receives any monetary payment." The complaint alleges that the franchise company's control over the money also is used to impose its will over virtually every aspect of a franchisee operation.

In addition, franchisees argue that to insure that the monies owed to 7-Eleven are paid every day and given priority over all other creditors, the franchise agreement gives 7-Eleven "absolute power to select the franchise store's bank account, mandate all store receipts to be deposited into that account, and control all payments made out of that account." In other words, 7-Eleven determines when and how any and all payments from store receipts are paid, whether to franchisee, worker or vendor. And the franchisor has control over the franchisee's accounting matters.

7-Eleven also mandates that prospective franchisees are obligated to complete 300 hours of training before they are advised whether they are qualified to be a store owner, and what store they will be assigned. The lawsuit states, "If the prospective franchisee is not deemed worthy by defendant [7-Eleven] after completing 300 hours of training, that prospect is paid nothing and must pay back defendant [7-Eleven] specified expenses." In addition, franchisees who are assigned a location must operate "24 hours a day, 7 days a week" with few exceptions.

The franchisor also has control over sources used to acquire products and services fold at franchise stores. 7-Eleven mandates to franchisees, "You must comply with our standards and specifications for all products and services carried, used or offered for sale at your store." The company also "solely dictates the location, size and layout of the store, including the decorations, fixtures and furnishings and equipment." And 7-Eleven has complete control as to how product is packaged and displayed in the franchisee's store.

7-Eleven obligates the franchisee to hire workers for the store "that are proficient in the English language, have a "clean and neat personal appearance," and communicate with customers in a "prompt, efficient and courteous" manner. Store owners are also obligated to require store employees to wear apparel approved by 7-Eleven while working in the store, and to train their staff with 7-Eleven's training material, outlined in the franchisor's operations manual.

The amended complaint states that while 7-Eleven's franchise agreement purports to give franchisees control over the manner and means of store operations and control over employment practices and policies, such self-serving characterizations, like contractual labels, do not neuter the reality of what 7-Eleven's franchise agreement requires.

When the initial lawsuit was filed by the franchisees, attorney Eric H. Karp of Witmer, Karp, Warner & Ryan, representing the National Coalition, stated, "The complaint alleges that the controls that 7-Eleven exerts over the franchisees are so pervasive beyond anything you would see in any other franchise system that they have become, in effect, employees. The company controls everything from the cash they generate to the hours they operate to the temperatures in their stores."

7-Eleven first introduced its retail store concept in 1927, and began franchising in 1964, after it acquired a chain of 126 franchised units in California. Today the Japan-based parent Seven & I Holdings Co. oversees 25,000 units worldwide, with 7,800 located in the U.S., supervised by its American subsidiary 7-Eleven, Inc.. Approximately 1,500 stores are located in California. 7-Eleven was named the number one franchisor this year by Entrepreneur Magazine's 38th annual Franchise 500 ranking.


Related Articles:

AttachmentSize
7-Eleven Counter Claim.pdf38.02 KB
7-Eleven Franchisees Respond to Counterclaim.pdf50.66 KB
Amended Complaint 7-Eleven Franchisees.pdf229.44 KB
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About Janet Sparks

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Public Profile

Janet Sparks is the former publisher of the Continental Franchise Review, an industry newsletter that covered the franchise community for over 30 years. She has also been a columnist for a leading franchise magazine for the past 13 years. Today she is an independent journalist who engages in investigative reporting, tackling complex issues that impact the franchise industry.

Janet can be reached at jsparks@bluemaumau.org or at 303-799-7398.